infoTECH News

[August 05, 2014]

Radisys Reports Second Quarter Financial Results

HILLSBORO, Ore. --(Business Wire)--

Radisys Corporation (NASDAQ:RSYS), a market leader providing wireless
infrastructure solutions for telecom, aerospace and defense
applications, announced second quarter 2014 revenues of $50.0 million
and a GAAP net loss of $8.2 million or $0.23 per diluted share. Second
quarter non-GAAP net loss was $2.5 million or $0.07 per diluted share.

Commenting on second quarter financial and business highlights, Brian
Bronson, Radisys President and Chief Executive Officer, stated, "Our
second quarter financial results were in-line with the expectations set
back in May as we continue to take the necessary steps to return to
second half 2014 profitability while at the same time continuing to
invest strategically to enable long-term profitable growth.

Revenue increased sequentially by approximately 14% with improvement
in Software-Solutions revenue of nearly 33%.

Deferred revenue was up over 14% sequentially due primarily to
early Media Resource Function (MRF) product shipments into our new
target markets.

We were awarded our first new business with our yet to be announced
next generation platforms products. One of these awards was with a
large North American carrier while another was with a leading
equipment provider.

We now have 25+ MRF trials in support of global Voice over LTE (VoLTE)
deployments with both our MPX-12000 system and our virtualized
software-only MRF (MPX-OS). These trials continue to progress well
with certain customers preparing for network deployment in 2014.

During the quarter, we won another meaningful MRF design win where
our partner will be deploying our WebRTC video transcoding
capabilities as part of their VoLTE solution.

Non-GAAP R&D and SG&A expense of $16.1 million was at its lowest level
in eight years reflecting our continuing progress in restructuring the
business.

Our contract manufacturing transition, which is expected to result in
approximately $6 million in annual cost of goods sold savings or
approximately 3 gross margin points, remains on track for completion
by the end of the third quarter of 2014.

Inventory decreased by over $4.0 million sequentially to $19.8
million, its lowest level in nearly four years, reflecting our efforts
to optimize working capital. We expect to further reduce inventory
during the second half of 2014.

Cash and cash equivalents were $34.6 million at the end of the second
quarter. During the quarter, we reduced outstanding debt under our
Silicon Valley Bank line of credit by $5.0 million. Second quarter
cash consumption excluding changes in debt was $2.7 million and
included cash restructuring payments of $1.3 million."

Third Quarter and 2014 Outlook

Third quarter revenue is expected between $48 million and $54 million
with Software-Solutions revenue expected to increase sequentially by
10% to 15%.

Non-GAAP gross margin in the third quarter is expected between 33% and
35% of sales and non-GAAP R&D and SG&A expenses are expected to
approximate $16 million.

Third quarter non-GAAP earnings are expected to range from a net loss
of ($0.03) to a profit of $0.09 per share and cash generation is
expected to be approximately $2 million.

Third quarter profit and cash generation is highly dependent upon
the receipt of cash from a large strategic carrier. The due date
for this cash is late in our third quarter and if received
following September 30, 2014 would result in fourth quarter
revenue and profit recognition.

2014 revenue is expected between $190 million and $200 million.

MRF revenue in support of Voice over LTE applications is expected
to increase from about $1 million in 2013 to approximately $8
million in 2014.

Non-GAAP gross margins are expected to exit 2014 in the mid to
high-30's due to expected growth in high margin Software-Solutions
revenue combined with the completed contract manufacturing transition
which is expected to add approximately three gross margin points when
complete in the fall of 2014.

Overall 2014 non-GAAP EPS is expected to approximate a $0.10 loss
implying an annualized fourth quarter exit rate of approximately
$0.30. The fourth quarter 2014 exit-rate may not be indicative of our
2015 profitability as we continue to evaluate investment levels
required to meet next generation product deliverables.

Mr. Bronson continued, "Over the last 18 to 24 months, we have made
significant strategic progress in our core areas of focus and have
significantly improved the operational execution of the company. At the
same time, we have simplified and dramatically reduced our cost
structure by nearly 40%. These actions have put us in a position to be
profitable and cash flow positive in the second half of this year.
Optimizing our cost structure while also ensuring we adequately invest
in next generation products is extremely challenging and I'm very proud
of the entire Radisys team for their commitment to get us to this point.
Given the strategic progress we continue to make with our next
generation products, we believe it is in our shareholder's best interest
to at least maintain, if not grow current operating expenses, so as to
ensure we capitalize on the significant opportunities in front of us."

Conference Call and Webcast Information

Radisys will host a conference call on Tuesday, August 5, 2014, at 5:00
p.m. ET to discuss its second quarter 2014 results and financial outlook.

To participate in the live conference call, dial 888-333-0027 in the
U.S. and Canada or 706-634-4990 for all other countries and reference
conference ID # 76227833. The live conference call will also be
available via webcast on the Radisys investor relations website at http://investor.radisys.com/.

A replay of the conference call will be available two hours after the
call is complete until 11:59 p.m. on Tuesday, August 19, 2014. To access
the replay, dial 855-859-2056 or 404-537-3406 and reference conference
ID# 76227833. A replay of the webcast will be available for an extended
period of time on the Radisys investor relations website at http://investor.radisys.com/.

Forward-Looking Statements

This press release contains forward-looking statements, including
statements about the Company's business strategy, financial outlook and
expectations for the third quarter and fiscal year 2014, fiscal 2015 and
statements related to expense savings or reductions, operational and
administrative efficiencies, revenue growth, margin improvement,
financial performance and other attributes of the Company. These
forward-looking statements are based on the Company's expectations and
assumptions, as of the date such statements are made, regarding the
Company's future operating performance and financial condition, the
economy and other future events or circumstances. Actual results could
differ materially from the outlook guidance and expectations in these
forward-looking statements as a result of a number of risk factors,
including, among others, (a) the Company's dependence on certain
customers and high degree of customer concentration, (b) the Company's
use of one contract manufacturer for a significant portion of the
production of its products, including the success of transitioning
contract manufacturing partners, (c) the anticipated amount and timing
of revenues from design wins due to the Company's customers' product
development time, cancellations or delays, (d) matters affecting the
embedded system industry, including changes in industry standards,
changes in customer requirements and new product introductions, (e)
actions by regulatory authorities or other third parties, (f) cash
generation, (g) changes in tariff and trade policies and other risks
associated with foreign operations, (h) fluctuations in currency
exchange rates, (i) the ability of the Company to successfully complete
any restructuring, acquisition or divestiture activities, (j) the
Company's ability to successfully manage the transition from 10G to 40G
ATCA product technologies, and (k) other factors listed in the Company's
reports filed with the Securities and Exchange Commission (SEC),
including those listed under "Risk Factors" in Radisys' Annual Report on
Form 10-K for the year ended December 31, 2013, copies of which may be
obtained by contacting the Company at 503-615-1100, from the Company's
investor relations web site at http://investor.radisys.com/,
or at the SEC's website at http://www.sec.gov.
Although forward-looking statements help provide additional information
about Radisys, investors should keep in mind that forward-looking
statements are inherently less reliable than historical information.
Should one or more of these risks or uncertainties materialize (or the
other consequences of such a development worsen), or should underlying
assumptions prove incorrect, actual outcomes may vary materially from
those forecasted or expected. The Company believes its expectations and
assumptions are reasonable, but there can be no assurance that the
expectations reflected herein will be achieved. All information in this
press release is as of August 5, 2014. The Company undertakes no duty to
update any forward-looking statement to conform the statement to actual
results or changes in the Company's expectations.

Non-GAAP Financial Measures

To supplement its consolidated financial statements in accordance with
generally accepted accounting principles (GAAP), the Company's earnings
release contains non-GAAP financial measures that exclude certain
expenses, gains and losses, such as the effects of (a) amortization of
acquired intangible assets, (b) stock-based compensation expense, (c)
restructuring and other charges (reversals), net, and (d) non-cash
income tax expense. The Company believes that the use of non-GAAP
financial measures provides useful information to investors to gain an
overall understanding of its current financial performance and its
prospects for the future. Specifically, the Company believes the
non-GAAP results provide useful information to both management and
investors by excluding certain expenses, gains and losses that the
Company believes are not indicative of its core operating results. In
addition, non-GAAP financial measures are used by management for
budgeting and forecasting as well as subsequently measuring the
Company's performance, and the Company believes that it is providing
investors with financial measures that most closely align to its
internal measurement processes. These non-GAAP measures are considered
to be reflective of the Company's core operating results as they more
closely reflect the essential revenue-generating activities of the
Company and direct operating expenses (resulting in cash expenditures)
needed to perform these revenue-generating activities. The Company also
believes, based on feedback provided to the Company during its earnings
calls' Q&A sessions and discussions with the investment community, that
the non-GAAP financial measures it provides are necessary to allow the
investment community to construct their valuation models to better align
its results and projections with its competitors and market sector, as
there is significant variability and unpredictability across companies
with respect to certain expenses, gains and losses.

The non-GAAP financial information is presented using a consistent
methodology from quarter-to-quarter and year-to-year. These measures
should be considered in addition to results prepared in accordance with
GAAP. In addition, these non-GAAP financial measures are not based on
any comprehensive set of accounting rules or principles. The Company
believes that non-GAAP financial measures have limitations in that they
do not reflect all of the amounts associated with the Company's results
of operations as determined in accordance with GAAP and that these
measures should only be used to evaluate the Company's results of
operations in conjunction with the corresponding GAAP financial measures.

A reconciliation of non-GAAP information to GAAP information is included
in the tables below. The non-GAAP financial measures disclosed by the
Company should not be considered a substitute for or superior to
financial measures calculated in accordance with GAAP, and
reconciliations between GAAP and non-GAAP financial measures included in
this earnings release should be carefully evaluated. The non-GAAP
financial measures used by the Company may be calculated differently
from, and therefore may not be comparable to, similarly titled measures
used by other companies.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES AND AS A
PERCENT OF REVENUES

(In thousands, except per share amounts, unaudited)

�

Three Months Ended

Six Months Ended

June 30

June 30

2014

�

2013

2014

�

2013

GROSS MARGIN:

GAAP gross margin

$

12,007

�

24.0

%

$

19,464

�

29.7

%

$

23,155

�

24.7

%

$

39,119

�

29.3

%

(a) Amortization of acquired intangible assets

2,055

2,218

4,109

4,435

(b) Stock-based compensation

151

111

282

241

(c) Restructuring and other charges, net

-

�

�

�

-

�

�

�

-

�

�

�

-

�

�

�

Non-GAAP gross margin

$

14,213

�

28.4

%

$

21,793

�

33.3

%

$

27,546

�

29.4

%

$

43,795

�

32.8

%

�

RESEARCH AND DEVELOPMENT:

GAAP research and development

$

8,408

�

16.8

%

$

12,020

�

18.4

%

$

16,827

�

17.9

%

$

23,555

�

17.6

%

(b) Stock-based compensation

324

�

�

�

234

�

�

�

553

�

�

�

483

�

�

�

Non-GAAP research and development

$

8,084

�

16.2

%

$

11,786

�

18.0

%

$

16,274

�

17.4

%

$

23,072

�

17.3

%

�

SELLING, GENERAL AND ADMINISTRATIVE:

GAAP selling, general and administrative

$

8,953

�

17.9

%

$

9,527

�

14.6

%

$

18,549

�

19.8

%

$

20,623

�

15.4

%

(b) Stock-based compensation

985

�

�

�

678

�

�

�

1,746

�

�

�

1,398

�

�

�

Non-GAAP selling, general and administrative

$

7,968

�

15.9

%

$

8,849

�

13.5

%

$

16,803

�

17.9

%

$

19,225

�

14.4

%

�

INCOME (LOSS) FROM OPERATIONS:

GAAP loss from operations

$

(7,429

)

(14.9

)%

$

(3,273

)

(5.0

)%

$

(16,893

)

(18.0

)%

$

(8,823

)

(6.6

)%

(a) Amortization of acquired intangible assets

3,315

3,522

6,666

7,043

(b) Stock-based compensation

1,460

1,023

2,581

2,122

(c) Restructuring and acquisition-related charges, net

815

�

�

�

(114

)

�

�

2,115

�

�

�

1,156

�

�

�

Non-GAAP income (loss) from operations

$

(1,839

)

(3.7

)%

$

1,158

�

1.8

%

$

(5,531

)

(5.9

)%

$

1,498

�

1.1

%

�

NET INCOME (LOSS):

GAAP net loss

$

(8,211

)

(16.4

)%

$

(4,112

)

(6.3

)%

$

(18,645

)

(19.9

)%

$

(10,669

)

(8.0

)%

(a) Amortization of acquired intangible assets

3,315

3,522

6,666

7,043

(b) Stock-based compensation

1,460

1,023

2,581

2,122

(c) Restructuring and acquisition-related charges, net

815

(114

)

2,115

1,156

(d) Income taxes

119

�

�

�

440

�

�

�

596

�

�

�

973

�

�

�

Non-GAAP net income (loss)

$

(2,502

)

(5.0

)%

$

759

�

1.2

%

$

(6,687

)

(7.1

)%

$

625

�

0.5

%

�

GAAP weighted average diluted shares

36,096

28,669

32,980

28,570

Escrow shares

-

-

-

30

Dilutive equity awards included innon-GAAP earnings per share

-

�

�

�

729

�

�

�

-

�

�

�

715

�

�

�

Non-GAAP weighted average diluted shares

36,096

�

�

�

29,398

�

�

�

32,980

�

�

�

29,315

�

�

�

GAAP net loss per share (diluted)

$

(0.23

)

$

(0.14

)

$

(0.57

)

$

(0.37

)

Non-GAAP adjustments detailed above

0.16

�

�

�

0.17

�

�

�

0.37

�

�

�

0.39

�

�

�

Non-GAAP net income (loss) per share (diluted)

$

(0.07

)

�

�

$

0.03

�

�

�

$

(0.20

)

�

�

$

0.02

�

�

�

�

�

�

RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE

NET INCOME (LOSS) PER SHARE

(In millions, except per share amounts, unaudited)

�

Three Months Ended

Twelve Months Ended

September 30, 2014

December 31, 2014

�

Low End

�

High End

Mid Point

GAAP net loss

$

(6.5

)

$

(2.3

)

$

(26.3

)

(a) Amortization of acquired intangible assets

3.4

3.4

13.4

(b) Stock-based compensation

1.6

1.6

5.9

(c) Restructuring and acquisition-related charges, net

0.3

0.3

2.7

(d) Income taxes

0.2

�

0.3

�

0.9

�

Total adjustments

5.5

�

5.6

�

22.9

�

Non-GAAP net income (loss)

$

(1.0

)

$

3.3

�

$

(3.4

)

�

GAAP weighted average shares

37,000

37,000

35,000

Non-GAAP adjustments

-

�

1,000

�

-

�

Non-GAAP weighted average shares (diluted) (I)

37,000

�

38,000

�

35,000

�

�

GAAP net loss per share

$

(0.18

)

$

(0.06

)

$

(0.76

)

Non-GAAP adjustments detailed above

0.15

�

0.15

�

0.66

�

Non-GAAP net income (loss) per share (diluted) (I)

$

(0.03

)

$

0.09

�

$

(0.10

)

�

(I)

�

For all periods presented guidance for the diluted earnings per
share calculation excludes the effects of the shares underlying our
convertible senior notes as the inclusion would be anti-dilutive.

�

�

�

RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE

GROSS MARGIN

(unaudited)

�

Estimates at themidpoint of theguidance
range

Three Months Ended

September 30, 2014

GAAP

29.5

%

(a) Amortization of acquired intangible assets

4.2

(b) Stock-based compensation

0.3

�

Non-GAAP

34.0

%

�

�

�

�

RECONCILIATION OF GAAP TO NON-GAAP GUIDANCE

RESEARCH AND DEVELOPMENT EXPENSE AND

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

(In millions, unaudited)

�

Estimates at themidpoint of theguidance
range

Three Months Ended

September 30, 2014

GAAP

$

17.4

�

(b) Stock-based compensation

(1.4

)

Non-GAAP

$

16.0

�

�

The Company excludes the following expenses, reversals, gains and losses
from its non-GAAP financial measures, when applicable:

(a) Amortization of acquired intangible assets: Amortization of
acquisition-related intangible assets primarily relate to core and
existing technologies, patents, trade name and customer relationships
that were acquired with the acquisitions of Continuous Computing,
Convedia, MCPD and Pactolus. The Company excludes the amortization of
acquisition-related intangible assets because it does not reflect the
Company's ongoing business and it does not have a direct correlation to
the operation of the Company's business. In addition, in accordance with
GAAP, the Company generally recognizes expenses for internally-developed
intangible assets as they are incurred, notwithstanding the potential
future benefit such assets may provide. Unlike internally-developed
intangible assets, however, and also in accordance with GAAP, the
Company generally capitalizes the cost of acquired intangible assets and
recognizes that cost as an expense over the useful lives of the assets
acquired. As a result of their GAAP treatment, there is an inherent lack
of comparability between the financial performance of
internally-developed intangible assets and acquired intangible assets.
Accordingly, the Company believes it is useful to provide, as a
supplement to its GAAP operating results, non-GAAP financial measures
that exclude the amortization of acquired intangibles in order to
enhance the period-over-period comparison of its operating results, as
there is significant variability and unpredictability across companies
with respect to this expense.

(b) Stock-based compensation: Stock-based compensation consists
of expenses recorded under GAAP, in connection with stock awards such as
stock options, restricted stock awards and restricted stock units
granted under the Company's equity incentive plans and shares issued
pursuant to the Company's employee stock purchase plan. The Company
excludes stock-based compensation from non-GAAP financial measures
because it is a non-cash measurement that does not reflect the Company's
ongoing business and because the Company believes that investors want to
understand the impact on the Company of the adoption of the applicable
GAAP surrounding share based payments; the Company believes that the
provision of non-GAAP information that excludes stock-based compensation
improves the ability of investors to compare its period-over-period
operating results, as there is significant variability and
unpredictability across companies with respect to this expense.

(c) Restructuring and other charges, net: Restructuring and other
charges, net relates to costs associated with non-recurring events.
These include costs incurred for employee severance, acquisition or
divestiture activities, excess facility costs, certain legal costs,
asset related charges and other expenses associated with business
restructuring activities. Restructuring and other charges are excluded
from non-GAAP financial measures because they are not considered core
operating activities. Although the Company has engaged in various
restructuring activities over the past several years, each has been a
discrete event based on a unique set of business objectives. The Company
does not engage in restructuring activities in the ordinary course of
business. As such, the Company believes it is appropriate to exclude
restructuring charges from its non-GAAP financial measures because it
enhances the ability of investors to compare the Company's
period-over-period operating results.

(d) Income taxes: Non-GAAP income tax expense is equal to the
Company's projected cash tax expense. Adjustments to GAAP income tax
expense are required to eliminate the recognition of tax expense from
profitable entities where we utilize deferred tax assets to offset
current period tax liabilities. We believe that providing this non-GAAP
figure is useful to our investors as it more closely represents the true
economic impact of our tax positions.

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